Letter of hypothecation. (Business Studies)
After the goods are shipped, the exporter desires to get payment of the bill drawn by him on the importer. Such immediate payment can be received by discounting the bill with his banker. To safeguard the interest of the bank in the event of dishonor of the bill by the importer, the exporter gives a letter of hypothecation to the bank by which the bank is authorized to sell the goods and pay the exporter. A letter of hypothecation is a letter issued by the exporter where the bank is authorized to sell the goods and recover money when the importer fails to honour the bill.